1. 1 Tutorial: Financial Feasibility ITEC 2010 “Systems Analysis and Design, I” [Prof. Peter Khaiter]

2. 2 Financial Feasibility (3 groups of calculations) Present value (PV) Payback period (breakeven point) – PBP/BEP Return on investment (ROI)

3. 3 Present Value Time value of money “Money tomorrow is cheaper than money today” In order to total money from different time periods, a corresponding discount factor must be used DF(0)=1; DF(1)=0.9091; DF(2)=0.8264;…

4. 4 Present Value

5. 5 RMO Cost Benefit Analysis Line 3 is the product of line 1 and line 2 Line 7 is the product of line 5 and line 6

6. 6 Payback Period Breakeven point is the point in the future, at which benefits become equal to costs. Line 9 in the Table represents Cumulative NPV of benefits and costs calculated year- by-year from Line 8 The second year in Line 9 shows a deficit of $4796 whereas the Year 3 ends with a positive value of $951,609 Therefore, the breakeven occurs during Year 2

7. 7 Payback Period How to calculate the breakeven date precisely? To express 0.005 in days, 0.005*365≈2 days PBP is 2 years and 2 days (see Line 10 in the Table)

8. 8 Return on Investment Shows the percentage return (like an interest rate) over the specified period of time (see Line 11)